Saving Money With Pre-Tax Commuter Benefits, 2023 Edition
Welcome to Saving Money with Andrew!
Even though we work from home part of the week, commuting is still our family’s seventh largest expense. When we lived in the city, unlimited subway passes were essential. Since moving to the suburbs, we park and commute from a commuter rail station, which is several times as expensive (as much as $24/day even with discounts).
About eight million Americans commute to work via public transportation. Although it’s a small fraction of working Americans (about 5%), it’s significantly higher among younger adults and those who read this newsletter. Public transportation is a great deal, but it’s not cheap. Subway monthly passes in most cities run around $100 and commuter rail can easily cost hundreds of dollars monthly.
Enter pre-tax commuting benefits. Many of you are already familiar with these programs, but if you aren’t:
Under a commuter benefit program, participants can set aside up to $300 per month for eligible transit expenses, and another $300 per month for eligible parking expenses (parking near work, or near where you commute to work).
These deductions are pre-tax, meaning that they reduce your taxable income dollar for dollar. If you are in the 24% federal tax bracket, for example, and pay 10% in state taxes, being able to pay for your commuting expenses with “pre-tax dollars” effectively saves you 34%.
If, for example, you spend $200 per month on commuting expenses and are in those tax brackets, you would save $68 in taxes per month (34% of $200), or about $800 per year, by using a commuter benefit program.
To get started, contact your HR department or check your benefits website to see if your employer offers commuter benefits. Most larger companies do, and many states require most employers to do so. Even if you work for a smaller company, there’s a good chance they use a third-party payroll service that offers commuter benefits.
Pre-pandemic, I typically used my employer’s commuter benefit program to purchase an unlimited subway pass to use for my daily commute. Now, I use a debit card provided by our program to purchase rail passes through an app. This lets me take advantage of the tax savings, while not having to commit to a monthly pass.
There are few drawbacks to these programs, but the most important one is that you generally can’t get back any funds you set aside. So, don’t overfund your transit account.
And now, Andrew’s pick(s) of the week:
An incredible longread: Three Abandoned Children, Two Missing Parents and a 40-Year Mystery (via: The Browser)
A bold claim: “P&G says that cleaning clothes in cold water could save $150 a year on a household’s energy bill”
A modest effect size, but notable: Dogs and Cats Linked to Reduced Child Food Allergies
And, some interesting links on the cost of housing:
“People are moving to places where housing can be built and away from places where it can not.”
Can New York Fix Its Housing Crisis? It Depends on the Suburbs
How a TikToker Brought Hundreds of Transplants to a Midwestern City
I hope this has been helpful. If you liked it, please share it on social media! Also, please send me your feedback, requests, and success stories.
